What are the options strategies before Broadcom's earnings report?

Broadcom Stock Analysis and Options Strategies

Broadcom (AVGO) is drawing attention as an important player in the technology sector. The stock price trading in the $400 range strengthens investors' growth expectations for artificial intelligence chips. According to the latest earnings report, a year-over-year increase of 63% in AI revenues further solidifies AVGO's partnership with Nvidia.

Strategic Partnerships and Market Expectations

As reported by The Information on December 6, discussions are underway between Microsoft and Broadcom to develop specialized chips to meet the increasing demand for artificial intelligence. Microsoft's shift from working with Marvell to Broadcom highlights how critical the company's strategic position is during a time when competition in the market is intensifying.

Status in the Options Market

Before the earnings report, intriguing developments are occurring in the options market. Significant open positions in call options with strike prices of $410 and $420 for the December 19 expiration indicate that large investors are increasing their expectations that prices will rise to these levels. However, open positions exceeding 10,000 in the $300 strike put option suggest that some investors are hedging against potential disappointment.

Risk Management and Strategies

Currently, the $398–402 range stands out as a reasonable entry point for investors. This range is where momentum is sustained and the earnings risk has not yet been priced in. However, falling below $390 would indicate a breakdown in the short-term trend; therefore, it would be prudent to develop a stop-loss strategy at that level.

To capture upside potential while limiting downside risk: buying a $410 call and holding a $300 put with the same expiration can provide a good balance. Additionally, for investors holding AVGO shares, a covered call strategy may not only generate premium income but also minimize potential risks.

Conclusion

The pricing of Broadcom is progressing towards the $410–420 range as the strength of the artificial intelligence cycle increases. A positive development post-earnings can accelerate a move above $420. However, managing the risks associated with high expectations is one of the key factors that will make investors successful.